In Hong Kong, we build a global business empire

Chapter 811 A stark contrast!
The moon sets and the sun rises; in the blink of an eye, another night has passed.

The following morning, the restaurant at the Fairmont Copley Plaza Hotel in Boston was elegant and tranquil.

At this moment, Lin Haoran and Guo Xiaohan were in a quiet private room, with the bustling Houwan market outside the window.

Lin Haoran had already spoken to the restaurant receptionist that a middle-aged man named Warren Buffett would be coming, and that the waiter should take him to the private room.

Guo Xiaohan sat by the window, glancing at the entrance from time to time, feeling a mix of nervousness and anticipation.

In fact, Guo Xiaohan is a graduate of Princeton University's business school in New Jersey.

Warren Buffett is quite famous in the United States, especially in the investment world.

Therefore, even at Princeton University's business school, many people regard Buffett as an idol, and it is common for professors to analyze Berkshire Hathaway's classic investment cases in class.

Influenced by her surroundings, Guo Xiaohan has read many of Warren Buffett's letters to investors and even listened to his public lectures.

In the eyes of her and many classmates and teachers, this wise man from Omaha is almost an insurmountable peak in the American investment world, calm, wise and with a touch of mystery.

But now, she was about to attend this legendary figure's private meeting at such close range, and as Lin Haoran's female companion.

This wonderful connection made her feel both proud and a little awkward.

She subconsciously straightened her clothes to make sure her demeanor was appropriate and that she wouldn't embarrass Lin Haoran.

Guo Xiaohan looked at Lin Haoran sitting opposite her, leisurely flipping through the local newspaper, and couldn't help but whisper, "Brother Haoran, will Mr. Buffett really arrive this early? It's only 10 a.m. now."

Lin Haoran looked up from the newspaper, a knowing smile on his face: "If he's as eager as he seemed on the phone last night, then he'll definitely arrive ahead of time."

Before she could finish speaking, Guo Xiaohan's gaze froze. She gently touched Lin Haoran's elbow and whispered, "Brother Haoran, he's here."

At the entrance to the private room, a waiter was standing in front, and Warren Buffett, accompanied by an assistant, was walking quickly into the room.

He looked more travel-worn than he appeared in public.

The classic suit seemed to bear the wrinkles of a morning rush, and although his face wore his usual gentle smile, the fleeting urgency in his eyes and the slight furrow in his brows could not be completely concealed.

What's even more striking is that he had a thick leather notebook tucked under his arm, and in his right hand he was even holding several folded documents that appeared to be financial newspapers or internal briefings.

“Mr. Lin!” Buffett reached out his hand from afar, his voice loud but slightly hoarse, “It’s a pleasure to see you again.”

"Mr. Buffett, welcome to Boston." Lin Haoran stood up calmly, shook hands firmly with Buffett, and maintained a respectful yet assertive attitude.

At that moment, he seemed to be receiving an ordinary old friend, not a world-renowned "stock market guru".

"This is Miss Guo Xiaohan, my wife," Lin Haoran introduced them.

Upon hearing this, Guo Xiaohan was overjoyed, and a warm feeling welled up in her heart.

Lin Haoran's use of "my wife" is not a formal title in the legal sense, but it is undoubtedly the highest recognition of her status and a heartfelt confession.

She rose gracefully and shook hands with Buffett with a poised and confident demeanor: "It's a pleasure to meet you, Mr. Buffett."

However, Guo Xiaohan was secretly surprised at this moment.

The stock market guru she imagined should be as steady as a mountain and as calm as a breeze.

But Buffett, though trying to remain calm, looked anything but.

“It is my honor, Mrs. Lin,” Buffett replied politely, but his attention was clearly more focused on Lin Haoran.

The group sat down again and ordered some simple brunch dishes.

As soon as the waiter left, Buffett almost couldn't wait to get to the point, skipping all the unnecessary small talk.

He sat up straight, placed the documents in his hand on the table, and said directly, "Mr. Lin, please forgive my directness, but I think you can probably guess the purpose of my visit."

He took a deep breath and looked directly at Lin Haoran with a frank gaze: "To be honest, the recent trends in the capital market, especially the market reaction after the full implementation of 'Reaganomics,' have left me feeling very confused and even somewhat uneasy."

He paused, organizing his thoughts: "Market optimism is at an all-time high, with indices repeatedly hitting new highs driven by certain sectors. This is a huge deviation from my expectations based on historical experience and traditional value investing principles."

A high-interest-rate environment has clearly taken hold, suppressing corporate financing and stock market valuations, yet the market seems to completely ignore this, indulging in the rosy illusions brought about by tax cuts and deregulation.

At this point, he picked up the briefing, which was clearly about Lin Haoran's speech at the Citigroup board meeting: "Mr. Lin, as you know, Citigroup has always been one of Berkshire Hathaway's investment targets, so we have been paying close attention to Citigroup's situation."

I obtained this agenda for the Citibank board meeting from an insider at Citibank.

I saw your transcript of your speech at Citibank. To be honest, Mr. Lin, your analysis was incisive and to the point, more profound and sharp than any other analysis I've ever heard.

It confirmed some of my deepest doubts, but it also brought more questions.

Buffett's eyes became incredibly serious, even carrying a rare hint of humility: "I am not here as the chairman of Berkshire Hathaway, but as an ordinary investor searching for direction and answers in the fog."

I would like to hear your views, Lin Haoran, on the future economic and market trends, especially how Berkshire Hathaway should respond next.

This straightforward and almost unassuming statement deeply shocked Guo Xiaohan, who was listening in.

She could clearly sense that this world-renowned investment guru was truly behaving like a student seeking advice from a teacher in front of her lover.

Lin Haoran seemed unsurprised by Buffett's frankness and humility. He gently stirred his coffee, a look of appreciation on his face: "Mr. Buffett, I admire your candor."

The market is always right, but sometimes it can collectively fall into a brief period of frenzy.

The biggest difference between you and other blind followers is your ability to recognize this 'bias' and feel uneasy about it.

In fact, that's their investment philosophy.

Warren Buffett famously said something that Lin Haoran still remembers vividly: "Be fearful when others are greedy, and greedy when others are fearful!"

The core of this statement is actually quite simple: "reverse thinking".

Be vigilant when the market is generally greedy, and seize opportunities when the market is generally fearful.

At that moment, amidst the clamor of "greed" in the market, he clearly sensed danger and felt "fear".

The policies implemented under Reaganomics plunged the entire United States into an atmosphere of optimistic celebration.

Tax cuts boosted corporate profit expectations, and deregulation stimulated market activity, enabling the Dow Jones Industrial Average to stubbornly rise amidst fluctuations. Wall Street was filled with excitement that a "new era" was about to begin.

However, amidst this pervasive "greed," Buffett, with his profound economic knowledge and deep understanding of market cycles, perceived the hidden risks:
The federal funds rate has been raised to an unprecedented high to combat stubborn inflation, which is like a rein that is being pulled tighter and tighter, and will sooner or later strangle the economy.

He chose to consult Lin Haoran precisely to verify the rationality of this fear and to find a solution.

"A great reputation is never undeserved," and at this moment, Lin Haoran deeply understood the meaning of this saying.

After all, he knew that the US stock market would fall early next year because he, as a time traveler, happened to have some knowledge of this information in his previous life.

As for Buffett, he relied entirely on his profound understanding of economic laws and keen market intuition to sense the impending crisis without any precognitive advantage.

Such judgment, based on solid research and rich experience, is truly admirable.

Lin Haoran had already guessed why Buffett had come to find him, so he was somewhat prepared.

He put down his coffee spoon, looked at the world-renowned 'stock market guru', and began his well-prepared analysis:

"First, regarding the short-term pain of 'Reaganomics,' I think we are in agreement on the fundamental judgment."

High interest rates resulting from tight monetary policy are not a possibility, but a reality that is already happening.

Its suppressive effect on the overall stock market valuation, especially on growth companies that rely on high leverage and continuous financing, as well as traditional asset-heavy industries, is immediate and severe.

The current market 'optimism' is more like a shot in the arm injected with policy expectations, a last hurrah before liquidity is fully tightened, rather than a result of substantial and widespread improvement in fundamentals.

I believe this will soon be confirmed by the data.

Buffett listened intently, nodding unconsciously, while simultaneously opening his thick notebook and picking up a pen to take notes.

Lin Haoran changed the subject, his gaze sweeping over Buffett: "Secondly, based on my understanding of Berkshire's investment portfolio, I believe the company is facing some potential risks that are being masked by the current market optimism."

This sentence made Buffett pause slightly as he took notes, then he looked up, his eyes becoming even more focused.

"Berkshire Hathaway's major holdings are currently concentrated in insurance, traditional newspapers, and some basic manufacturing sectors," Lin Haoran pointed out without hesitation. "While these industries certainly have solid moats, in a high-interest-rate environment, the float investment return rate of the insurance business will face challenges, and the impact of emerging technologies on traditional media will only intensify."

Financing costs and market demand in some manufacturing sectors may also slow down as the economy restructures.

Their recovery resilience may be far lower than market expectations. Berkshire Hathaway's success is built on value discovery over the past two decades, but the keys to the next few decades may not still be firmly in the hands of these 'old-era' giants.

Warren Buffett acquired Berkshire Hathaway in 1962, exactly twenty years ago.

Buffett frowned deeply. Lin Haoran's words were undoubtedly a questioning of the investment principles he had upheld for the first twenty years.

But instead of refuting him, he asked in a deep voice, "So, Lin, in your opinion, where is Berkshire Hathaway headed in the future? How should we adjust?"

Lin Haoran stated very directly: "Embrace change, Mr. Buffett, and embrace the upcoming technological wave and industrial transformation without hesitation."

Of course, I know that the purpose of your visit is because you are worried about the future of the US stock market due to the series of policies introduced by Reaganomics, and you want to get some useful advice from me.

Therefore, I won't go into too much detail about future investment directions, as I believe you have a better understanding of various industries in the United States.

Let's explore whether President Reagan's policies truly led to a stock market boom and a prosperous American economy.

Lin Haoran's words startled Buffett slightly, and he then became even more focused.

He originally thought Lin Haoran would continue to elaborate on his views on technology stocks, but unexpectedly, the other party directly cut to the core issue that he cared about most.

"Please elaborate." Buffett put down his pen and leaned forward unconsciously.

Lin Haoran analyzed calmly: "The core of Reaganomics is tax cuts, deregulation, and monetary tightening. Tax cuts can indeed stimulate corporate investment, and deregulation can also unleash market vitality, but the effects of these two policies take time to appear, while the impact of monetary tightening is immediate."

He picked up a napkin and casually drew a simple diagram: "The federal funds rate is currently as high as 14%, which is an unprecedented level."

High interest rates mean a sharp rise in corporate financing costs, a contraction in consumer credit, and a cooling of the real estate market.

These negative impacts will likely manifest themselves sooner than the policy benefits.

Buffett nodded thoughtfully: "That's exactly what I'm worried about. The market seems to only see the positive side, while selectively ignoring the risks."

Therefore, I judged that the outlook for US stocks might not be as optimistic as everyone thought, but this view was not shared by anyone until I saw this board meeting minutes report from Citibank…”

At that moment, Buffett looked at Lin Haoran as if he had met a kindred spirit.

“Moreover,” Lin Haoran continued, “I think the market has underestimated a key factor—the impact of a stronger dollar on exports.”

With soaring interest rates, international capital is flowing into the United States in large quantities, driving the dollar higher and severely weakening the competitiveness of U.S. manufacturing.

Guo Xiaohan listened quietly to Buffett, noticing that his expression was becoming increasingly serious.

This usually composed investment guru unconsciously tapped his fingers lightly on the table, revealing his inner unease.

"You mean..." Buffett pondered, "that the market's optimism might not last long?"

"I believe that by early next year at the latest, which is just over a month from now, the market will begin to reflect these negative factors, and the magnitude of the adjustment may exceed many people's expectations," Lin Haoran said confidently.

Buffett paused for a moment, then suddenly asked, "In that case, do you think this stock market downturn will be prolonged, or will it lead to a bear market?"

This is what Buffett is most worried about.

He saw that the market was overly optimistic, and therefore he was worried about it.

But Buffett also has another style, which is to hold quality stocks for the long term, and it can even be said to be his core investment philosophy.

Therefore, what he is really concerned about is not short-term market fluctuations, but whether this adjustment will evolve into a prolonged structural bear market, thereby affecting his long-term investment strategy.

Lin Haoran understood the deeper meaning in Buffett's words. He smiled slightly and calmly replied, "Mr. Buffett, I believe this adjustment is more likely a healthy 'valuation repair' than the start of a long-term bear market."

This assessment immediately piqued Buffett's interest: "Oh? Please elaborate."

"First, we need to distinguish between cyclical adjustments and structural bear markets," Lin Haoran explained clearly. "The current market problem is mainly due to overvaluation, rather than a fundamental deterioration in the economic fundamentals."

The long-term effects of Reaganomics are promising; tax cuts and deregulation can indeed enhance the competitiveness of American companies.

He paused briefly to allow Buffett to process the idea before continuing: "Secondly, this correction has actually created a rare opportunity for value investors."

When the market is in panic, the stock prices of truly high-quality companies are often unfairly punished, which presents the perfect opportunity to practice "being greedy when others are fearful."

Buffett's eyes lit up; he was clearly interested in the idea: "You mean we should see this correction as an opportunity to buy quality companies?"

“That’s right.” Lin Haoran nodded affirmatively. “But the key is which companies to choose. I think we should focus on two types of companies: one is defensive companies that are less affected by high interest rates and have stable cash flow.”

Another category consists of growth companies that represent future development trends but are undervalued due to market panic.

At this point, Lin Haoran added, "Moreover, this adjustment may not last too long, but it will definitely not be short either. It will last at least half a year, and the process may involve multiple cycles of decline and rise."

Once the market has absorbed the impact of high interest rates and refocuses on the improvement of economic fundamentals, a new round of surge is likely, and then a bull market will arrive.

In fact, as Lin Haoran said, in the early stages of Reaganomics, the US stock market did experience a considerable period of fluctuation and adjustment.

From the end of 1981 to the first half of 1982, the Dow Jones Industrial Average struggled to find support as it repeatedly tested the bottom.

But just as Lin Haoran predicted, once the market had fully absorbed the negative impact of high interest rates and begun to enjoy the policy dividends brought about by tax cuts and deregulation, a bull market that lasted for several years quietly began.

Buffett thoughtfully took notes in his notebook, then asked a crucial question: "But Lin, according to your judgment, should we start reducing our holdings now and wait for a better buying opportunity?"

“That’s a very good question.” Lin Haoran nodded approvingly. “My suggestion is to take a gradual approach. There’s no need to rush into a large-scale reduction in holdings, but we can start to gradually adjust the investment portfolio, increase cash reserves, and prepare for the upcoming opportunities.”

He further explained, "After all, it is difficult to accurately predict market tops. We just need to make sure that we have enough 'ammunition' to strike when the market corrects."

This conversation made Buffett think deeply.

He tapped the table lightly for a long time before speaking: "Lin, your analysis reminds me of an important principle: the market always swings between excessive optimism and excessive pessimism."

The important thing is to remain rational and find true value amidst the noise.

“That’s right.” Lin Haoran smiled in agreement. “Moreover, I believe that after this adjustment, the market’s investment style may undergo a significant change.”

Funds will be more rational, focusing more on the actual value of enterprises rather than simply policy expectations.

Furthermore, and most importantly, in my judgment, this decline in US stocks won't be too significant, at most no more than 15%, and possibly even less. I can't pinpoint the bottom; that's something Mr. Buffett needs to determine.

Lin Haoran's specific prediction of the decline made a glint of light flash in Buffett's eyes.

He immediately followed up with, "What is the basis for your prediction of a maximum 15% drop?"

"This is a comprehensive judgment based on multiple factors," Lin Haoran explained calmly. "First of all, although a high-interest-rate environment will put pressure on the stock market, the fundamentals of corporate profitability have not fundamentally deteriorated."

Secondly, the allocation needs of long-term institutional investors such as pension funds and insurance funds will provide support during market downturns, and most importantly…

Lin Haoran paused deliberately to make sure Buffett was fully focused: "The market still has long-term confidence in Reaganomics. Once it adjusts to a reasonable valuation range, bargain hunters will flock in."

The two continued their in-depth conversation, discussing everything from macroeconomics to specific industries, and from investment strategies to risk management.

Guo Xiaohan listened quietly to Buffett, noticing that he was like a humble student seeking advice, his expression gradually changing from initial anxiety to composure, and he even occasionally showed a knowing smile.

As for the assistant next to Buffett, the shock on his face was almost palpable.

He had followed Buffett for many years and had never seen the investment master listen to others' insights so attentively, let alone nod and take notes so frequently, as if he had returned to his student days.

When Lin Haoran talked about investment opportunities in the technology industry, the assistant couldn't help but steal a glance at his boss.

Buffett was completely absorbed in Lin Haoran's analysis, occasionally asking insightful questions. He was no longer as calm and composed as usual, but instead showed a thirst for knowledge.

Warren Buffett is known outside the home as an "investment master" and "stock god," and has always been highly regarded.

But at this moment, in this quiet private room, he was like a humble student, attentively listening to every word Lin Haoran said.

This stark contrast deeply shocked the assistant.

(End of this chapter)